Problem basics:
- China Airlines currently flies twice a day from Guangzhou to Sydney and back and offers a connection Perth
- Want to know if they should create a direct flight from Guangzhou to Perth
- Goal: to calculate profitability. Knowing that profit=revenue-cost, and revenue=price x quantity

Basic info for calculating revenue:
- Airline operates 2 flights from Guangzhou to Sydney and back
- Expected price of one flight from Guangzhou to Perth=$600
- About 20 ppl on the flight from Guangzhou to Sydney have Perth as their final destination.

When calculating revenue from the flight from Guangzhou to Perth, the website answer says you should do $600 x 40 (since 20 ppl/flight and 2 flights). i just have two quick questions about this:

1) If you're calculating quantity adjusting for 2 flights, shouldn't you also make price $1200? So shouldn't it be $1200 x 40?
2) Flying twice a day and back is a total of 4 flights right? So in order to calculate total revenue, you could calculate the revenue for one flight ($600 x 20) and multiply it by 4?

December 24th 2012, 03:47 PM

HallsofIvy

Re: Calculating revenue

The problem says they "Want to know if they should create a direct flight from Guangzhou to Perth"

Yes, you are told that the "Airline operates 2 flights from Guangzhou to Sydney and back" but that does not mean that they will have two flights from Guagzhou to Perth. Since there are 20 people per flight that go on to Perth, you can assume there are 40 people who want to go to Perth. But that doesn't mean they should pay for two flights!

December 24th 2012, 06:54 PM

phi1234

Re: Calculating revenue

Okay great. Thank you! I just have one more question regarding revenue calculation.

So for the above, we are assuming that there are 40 people who want to go to Perth.

Say that we were to calculate the revenue from the Guandong to Sydney flight after the direct flight to Perth has been made.

Basics for calculating Guandong to Sydney (after Perth flight has been made)
- Price of one flight from Guandong to Sydney: $600
- Quantity:110 people per flight.

Now when making this calculation, should you do 600 x 110? or 600 x 220? I'm just a bit confused since we calculated quantity adjusting for 2 trips for the Perth flight.